Financial and technological issues for the development of clean energy projects in Vietnam

For this event, the Organizing Committee has received over 20 documents from the state management agencies (Department of Electricity and Renewable Energy, Electricity Regulatory Authority under Ministry of Industry and Trade (MoIT), Office of the National Steering Committee on Development Electricity), state-owned enterprises in the power sector (National Load Dispatch Center, National Power Transmission Corporation under Electricity of Vietnam (EVN)), foreign organizations and investors (German GIZ Energy Program in Vietnam, Japanese Marubeni), financial institutions, banks (HSBC Bank, HDBank, BIDV), domestic and foreign investors in the electricity sector and renewable energy enterprises (Jinko Solar, VSUN, Trina Solar, Growatt, Solis, GoodWe, Jetion Solar, Vietsovpetro, Gelex Group, Cadivi, EMIC - Gelex, Alena Energy). The main content of the documents focused on:

(i) Sharing the production potential of the clean energy equipment with the advanced, high efficient and friendly environmental technologies (wind power,

solar power, hydropower, liquefied petroleum gas (LNG) thermal power technologies ...).

(ii) The International experience in selecting advanced, sustainable, financial and price harmony technologies; and in developing the technical - technological standards needed to be promulgated for creating a transparent legal corridor in project development.

(iii) The International experience in the developing countries on policy to attract investments and conditions to issue credit and loan capital for investment in clean energy projects.

(iv) The advantages, difficulties and obstacles in applying and developing clean energy projects.

(v) The proposals to the state management agencies to consider and promulgate mechanisms and policies to remove obstacles and difficulties for the investors.

Besides, the Forum Organizing Committee voted and announced the TOP 12 prestigious electrical equipment brands in Vietnam in 2020.

On the basis of the document contents and exchanging opinions with the experts, investors, enterprises and managers… The Scientific Council of Vietnam Energy Magazine would like to report a number of the content related finance and technologies and the proposals for clean energy development in Vietnam as follow:

I. Current situation of clean energy development:

By the end of 2020, the total installed capacity of power plants of Vietnam's power system was over 62,300 MW (in case accounting the rooftop solar power, projects as over 71,000 MW). Among which, the renewables (wind power, solar power, biomass power and small hydropower projects) as 23,200 MW, accounting for 32.6% of the installed capacity of the whole system; the large hydropower prọects - 17,000 MW, combined cycle gas turbines gas-fired projects - 7,400 MW. Thus, the clean energy projects with a total capacity of 47,570 MW, accounting for 67% of the total installed capacity of the whole power system.

It is expected that by the end of 2021, will be about 5,600 – 6000 MW of wind power projects put into operation. Therefore the capacity of the wind and solar power projects will account for 29% of the total power plant capacity (about 78,200 MW) by the end of this year and will account for 54% of the peak load capacity as 42,146 MW recorded at the sunshine June/2021.

EVN informed that the national power system with a maximum load capacity of over 42,000 MW as recorded in June is in front of the power shortage risk – “supply does not meet demand”. So, it is expected that the peak load may be reduced and electricity consumption may be limited.

II. The current difficulties in developing clean power projects:

1. For solar power projects: The solar power projects connected to the power grid by the 2020 year have been approved to be supplemented to the Power Development Planning VII (PDP VII) with a total capacity of 15,260 MW, but as of December 31, 2020 only 146 projects with a capacity of 9,000 MW put into operation, for the remaining projects with a capacity of 6,000 MW, the investors are still waiting for mechanisms and policies to participate in the investment.

2. For wind power projects: There are 187 projects with a capacity of 11,584 MW that have been approved to be supplemented to PDP VII. Currently, 106 projects with a capacity of about 6,000 MW are urgently completing construction for timely the FIT price deadline as of October 31, 2021, while the remaining projects with over 5,000 MW have not been deployed. For the projects in current construction, many of these projects face serious difficulties due to the “force majeure” impact of the Covid-19 pandemic. Many investors are facing the bankruptcy risk, if they couldn’t put their projects into commercial operation by the above deadline. The difficulties are:

2.1. 100% wind power equipment is imported from abroad, the security of technology and installation depends largely on the guidance of experts and senior engineers of the equipment supplier. Due to the Covid-19 pandemic, most experts and engineers arrived at the construction site much later than planned, which affect the installation progress of the projects.

2.2. The serious shortage of domestic manpower for the project construction due to the Covid-19 pandemic social breakdown.

2.3. The supply and delivery of equipment from abroad are delayed due to the customs procedures, seaport closing and prevention procedures for inspection on the road.

2.4. Transporting the wind power equipment as super-long and super-heavy goods are very difficult due to that the many localities require to comply with Government Directives No 15 and 16 for the Covid-19 pandemic prevention. Besides, in a number of cases, it is necessary to increase the clearance height of the power line across the road or widen the radius of curvature of the road, especially in mountain regions, for the truck with the wind power equipment passing.

2.5. From the beginning of 2021, the prices of the materials (iron, steel, cement, sand, etc) in the market unusually increased by scarce supplies due to the Covid-19 pandemic, which impacts the progress of the projects.

2.6. The grid connection for wind power projects not completed in time was partly caused by the social breakdown for pandemic prevention.

2.7. The activities to check and take over and make test operation, and procedures for recognising commercial operation date for a project were stretched due to the Covid-19 pandemic breakdown. There was a case that nobody from the inviters attends the project test operation due to social breakdown.

According to the international routine and Vietnamese law, the "Covid-19 pandemic" is a "force majeure clause", so the wind power investors cannot ask contractors, especially foreign suppliers of wind power equipment to compensate, or partially recover losses. The project investors have made great efforts to speed up all the domestic works that can be completed by accepting the increases in the investment rate, in prices of materials and equipment to bring the materials and equipment to the construction site earlier than planned and strengthened to mobilize human resources and arrange continuous shifts and crews. With the complicated situation of the Covid-19 pandemic, the project costs increase while the capital mobilization interest rate is fixed, which leads projects to a very expensive situation, difficulty to recover capital and the risk of bankruptcy.

III. The issues on mechanisms and policies for developing the clean power projects:

According to the Law on Planning, the Decision for approving the National Power Development Planning (PDP) will only specify the list of prior investment, important projects for the country, therefore, the list of other projects (not be mentioned in the approving Decision) should be specified with a concrete mechanism for ensuring the principles stipulated in the Electricity Law as “Investment in power development must be consistent with PDP. The project not included in PDP may only be implemented with the permission of competent authority approving PDP. In the case without this mechanism, the other projects should have no basis for implementation, including a tender for selecting the project investor, even the PDP VIII will be approved.

Based on the contents of presentations, opinions of the managers and experts on mechanisms and policies for the clean power projects, there are should be emphasized a number of the problems as follows:

1. The bidding mechanism for selecting investors to implement solar and wind power projects should be built on the basis of the competitive electricity prices and Decree 25 on bidding for investor selection; The Provincial People's Committees organize competitive bidding in accordance with the electricity prices within the ceiling price framework promulgated by the Ministry of Industry and Trade.

2. For renewable energy (RE) sustainable development in accordance with the objectives of Politburo Resolution 55, in principle, it is necessary to form the thrifty mechanisms and policies in a clear and concrete roadmap with moving from the FITmechanism to price bidding and direct power purchase agreement (DPPA), and gradually moving to an integrated mechanism with the electricity market, so that investors have a plan for implementation.

3. With more and more developing RE techniques and technology, the investment costs of RE projects have a tendency to decrease which allows RE projects to better access the competitive electricity market. At the same time, in the case when the RE proportion in the power system increases to a certain rate, the RE participation in the competitive electricity market should be absolutely necessary for ensuring optimal and efficient operation of the power system and electricity market. The fact that RE projects participate in the electricity market and sign DPPAs with the electricity customers has become a trend and opportunity in many developed countries such as the US, UK, Sweden, Australia, Norway, Netherlands, Mexico, Ireland... with the strong participation and support of large corporations such as: Apple, Google, Facebook, Amazon, Microsoft, Samsung... The sustainable mechanism helps Vietnam achieve the double goals as RE direct investment attraction, climate change prevention and sustainable development.

4. According to the energy strategic orientation in Politburo Resolution 55 issued in February 2020, the Basic Scenario of the Draft PDP VIII (draft version in March 2021) paid attention to RE development with the RE rate /total power system capacity as 53.9 % in 2025 and 47.8% in 2030, and in the case of “non-hydro power” (mainly solar and wind power projects), the capacity of RE projects would reach 28.560 MW equal to 30.0% in 2025 and 37.850 MW, equal to 29.8 % in 2030.

This RE scale requires a medium- and long-term mechanism for development investment in the RE projects alikes the planned goals.

5. As the solar and wind power projects depend on the weather and can not control unusual situations. For preventing grid overload caused by RE projects, stabilizing the frequency of the power system, it requires installing of energy storage equipment in the power system. However, according to the current legal normative act, the energy storage system is unpermitted to participate in providing energy service due to it is a new type of equipment and does not directly generate electricity. In the coming time, it should be necessary to establish the legal normative act and mechanism for this system.

6. For the thermal power projects fired liquefied natural gas (LNG), according to PDP VII (adjusted project), at present, there are 9 LNG power projects with a total capacity of about 17,900 MW preparing for construction investment with the goal to be put into operation before the 2025 year. These projects are in the process of selecting investors, or arranging investment capital with a very large amount of capital (about $900,000/MW). One of the difficulties is the lack of mechanisms, policies and project investment structure and clear guidelines on procedures, appraisal and approval process/permits related to the project for obtaining international financial arrangements.

In the next 10 years, the large offshore wind power projects, LNG power projects and other green power projects need to be mobilized from the international capital resources. Therefore, it is necessary to continuously improve the laws, regulations and policies related to the electricity and clean energy sectors for the investors and foreign credit institutions to commit to investing smoothly.

IV. A number of proposals and petitions:

On the basis of the above analysis, the Scientific Council of Vietnam Energy Magazine would like to propose:

1. It is necessary to speed up the PDP VIII approval for preparing investment projects to meet electricity demand for the socio-economic development of the country. In the approving Decision, the list of other projects (not mentioned in PDP VIII) should be specified with the concrete mechanisms to create a basis for the next implementation, including tender to select project investors.

2. Regarding the mechanisms and policies for RE development (some mechanisms has been implemented, or are being drafted and studied), the following proposals are set up:

2.1. Based on promotions of the enterprises and provincial people’s committees in the southern region and central highland, the Prime Minister is proposed to consider extending the deadline for applying FIT prices for the wind power projects under construction and for that PPAs have been signed. The extension period corresponds to the lengths of the 3rd and 4th waves of the Covid-19 pandemic outbreak.

2.2. It is necessary to issue a clear regulatory policy for offshore wind power, including regulations on taxes, fees, etc and to create a legal framework for approving and encouraging the development of offshore wind power projects. At the same time, it is necessary to issue the policy on a long-term wind power roadmap for the investors to actively grasp the situation and to have specific plans for mobilizing capital and human resources and avoiding spendthrift.

2.3. In the short term, the Government and the Ministry of Industry and Trade (MoIT) should promulgate mechanisms and policies on tender for selecting prices of RE projects enclosed the capacity the project can achieve (by price bidding mechanism) for controlling power capacity volume put into operation in the next 3 years to get competitive prices of solar and wind power projects close market price. Besides, it is proposed to prioritize selecting the investors with advanced and high-efficiency technology and solutions to reduce environmental impact. These priorities should be quantified in the bid price when determining the auction mechanism.

2.4. In the medium term, RE project directly participating in the competitive electricity market is an increasingly popular trend and considered a successor to the FIT mechanism. Therefore, the Government and MoIT should as soon as possible issue regulations on the model DPPA between the RE project and customers. At the beginning, the power capacity proposed for model DPPA is 1,000 MW. After two-year model DPPA implementation, there should be a summarization for deciding to officially apply this mechanism as one of the policies for attracting long-term investment in the power sector and contributing to form a transparent and competitive electricity market attracting investment in RE particularly, and in the power sector in general, in Vietnam.

2.5.The Prime Minister should direct as soon as to establish policy for promoting the installation of the energy storage systems in RE projects or Power Systems for avoiding the social investment spendthrift.

2.6. MoIT should study and as soon as possible issue the technical requirements for grid-connected energy storage systems; supplement and adjust circulars, processes and regulations for the energy storage systems to ensure a fully legal basis for the energy storage sýtems in the national power system. On this basis, to allow investment in energy storage systems at RE projects and model investments at the nodes of the power transmission and distribution grids with the functions as the power system controller or frequency regulator.

3. The financial mobilization for investment in clean power projects:

This is one of the difficulties and obstacles in construction investment with the electricity market mechanism, especially for large power projects. Therefore, the Government needs to assign functional agencies to conduct an overall study linking the project investment mobilization with the electricity market operation (currently these functions are separate, having little interaction, which leads to difficulty for establishing feasibility project). So, in the short term, the risk share should be considered up to the level “credit can be mobilized” and stipulated in the PPA contract.

Whereby:

3.1. MoIT should consider to amending the Circular on "regulating the method for determining electricity generation prices and PPA contracts" in order to mobilize international capital sources. The appropriate mechanism for risk share between the stakeholders (including the Government) that can be unanimous and showed in project documents (particularly in the PPA clauses) should include provisions in the form of “financial arrangements” for the investors to arrange the capital.

3.2. The Ministry of Planning and Investment should consider completing the clear and simple guidelines on procedures, appraisal and approval processes and licensing related to the large power projects (offshore wind power projects, LNG power projects...) for avoiding bottlenecks in investor selection procedures, appraisal and approval of investment policies (the processes of appraisal of investment policy for Tri An Hydropower Plant extension, O Mon III gas power, Van Phong - Vinh Tan 500 kV transmission line, etc. were delayed for 3-4 years).

3.3. The State Bank should consider to developing regulations on granting credit and bank guarantees for green energy (clean energy) projects. Immediately, to amend Circular 41/2016/TT-NHNN on "regulations on the safe capital ratio for the foreign banks and bank branches" towards applying a lower risk weight in granting credit for green energy projects, reducing the impact of the credit growth ceiling for commercial banks which provide credit for green projects. To amend the Circular 07/2015/TT-NHNN and Circular 13/2017/TT-NHNN on “regulations on bank guarantees” to create an adequate legal framework for commercial banks in issuing guarantee obligation for the foreign currency debt repayment of the green energy projects.

The above-presented issues are the discussions, shared opinions and exchanges of the participants in the " First International Forum on Finance and Technology for Clean Energy Projects in Vietnam " and the proposals on a number of mechanisms and policies for sustainable developing renewable energy and clean energy projects with a goal to bringing Politburo Resolution 55 to the life. The Scientific Council of Vietnam Energy Magazine respectfully reports to the Prime Minister, Central Economic Commission, Ministry of Industry and Trade and related Ministries and Agencies for consideration and direction.

SCIENTIFIC COUNCIL VIETNAM ENERGY MAGAZINE.